Even if mortgage brokers yield to pressure to make clear and timely disclosures of controversial yield spread
premiums (YSPs), consumers will still have to contend with a substantial segment of the mortgage industry that doesn't have to disclose
YSPs.

YSPs are points paid by lenders to brokers for loans carrying interest rates above a par rate -- a rate at
zero points. (Points are expressed as a percent of the loan. Each point is typically one percent of the loan amount -- one point for a
$100,000 loan is $1,000.). Conversely, on rates below the par rate, lenders charge the points to the borrower.

As an example of how YSPs work, let's say the price quote from the lender to the broker was 7 percent with no
points. The broker offered the same loan to the borrower at 7 percent and 1.5 points, with the 1.5 points as the broker's markup.

By the time the loan is locked, however, market rates drop and the lender is now offering a YSP of 1 point
for the 7 percent loan. The broker pockets the difference as income. The borrower may not discover the difference until closing, when it
must be disclosed.

When borrowing from financial entities that fund their own loans, many consumers still won't know, on the
average, they are paying $1,850 per loan to cover the cost of YSPs, according to an academic study of YSPs conducted by an expert witness
in a YSP-related civil suit.

HUD's statement was the opening salvo last year that began the new war against RESPA violators. RESPA, with
HUD as its enforcer, is a federal consumer protection statute that regulates mortgage related fees and disclosures. Brokers largely have
been the target of HUD's recent enforcement activities because they originate 70 percent of all mortgages and have been the target of
approximately 150 YSP-related civil suits.

"The law says if you are a broker you must disclose yield spread premiums at the top of page two," of the
federally mandated Settlement Sheet required on all loans, says Bob Chaplin, president of the
National Association of Mortgage Planners.

A lender offering a 7 percent, 30-year fixed-rate mortgage at par might offer the same loan at 6.5 percent
with 2 points, and at 7.5 percent with a YSP of 1.5 points.

Unfortunately, borrowers don't always know when they are paying the costs of a YSP until it's time to sign
for the loan. The broker must disclose the amount, but not until the HUD-1 Settlement Sheet is prepared -- often just a day or so before closing.

Among other stepped-up RESPA enforcement actions, HUD would like to change the policy and have brokers
disclose the amounts sooner, and brokers are seeking common ground to do so, but the efforts haven't considered financial entities who
comprise 30 percent of the market, fund their own loans and aren't required to leave a paper trail amounting to hundreds of dollars in
consumer loan costs.

"My study indicates that the vast majority of borrowers pay yield spread premiums -- on the order of 85 to 90
percent of all transactions. Moreover, the average amount of yield spread premiums is quite substantial, on the order of $1,850 per
transaction," said Prof. Howell E. Jackson, a law
professor and associate dean of research and special programs at Harvard University, testifying earlier this year before the U.S. Senate
Committee on Banking Housing and Urban Affairs.

The study, an examination of 3,000 mortgages originated by one group of affiliated lending institutions in
the late 1990s, is the most extensive empirical investigation of yield spread premiums to-date, Jackson says.

The study, like HUD's recent enforcement actions was designed to scrutinize brokers, but not lenders exempt
from disclosing YSPs.

That hasn't gotten by the National Association of Mortgage Planners, a maverick group of brokers who say for
years they have disclosed YSPs effectively for consumers and now say HUD's actions don't go far enough.

"Very large conduits are people who buy and sell mortgage loans and in the first few days after a loan is
made with a lot of yield spread premiums that changes hands. That ought to be disclosed too," the association's Chaplin said.

"I cheer HUD in its efforts to crack down. I'm very pleased with some of the regulators in Texas who are
really chasing after the worst of the worst, but I am not optimistic that rules will promulgate that are enforceable and that will require
full disclosure of every body doing residential loans. Somebody has to get more sophisticated in defining disclosure laws and ask the tough
questions," Chaplin added.

Copyright 2004 DeadlineNews.Com -- Broderick Perkins, is executive editor of San Jose, CA-based
DeadlineNews.Com, an editorial content and consulting firm. Perkins has been a consumer and real estate journalist for more than 25 years.

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